According to Directorate-General of Budget, Accounting and Statistics (DGBAS) data, third-quarter economic growth dropped to 1.58 percent, a decline of 0.89 percentage points from the 2.47 percent forecast in August. The main reason for this was that exports, consumption and investment all fell short of expectations. In addition, exports declined last month, and September exports declined more than expected compared with the same period last year.
The continued drop last month implies that annual economic growth will be worse than expected. Originally, annual growth was forecast at 4 percent, but now no one is willing to predict that it will reach 2 percent.
DGBAS Minister Shih Su-mei (石素梅) says GDP for the year will be adjusted downward, although, absurdly, the directorate has already done so 10 times this year. The Taiwan Institute of Economic Research (TIER) has said that economic growth will fall short of the 2 percent mark, so it is time for the government to stop misleading the public.
At a meeting on improving the economy on July 30, President Ma Ying-jeou (馬英九) said that economic growth would be stimulated through three growth engines — the establishment of “free economic pilot zones,” expanded public construction and export growth.
The most important thing for building economic momentum will be to increase private consumption and consumer confidence. There are three main reasons why Ma’s three growth engines will not become driving forces for economic growth any time soon.
First, when it comes to the pilot zones, Taiwan’s economic structure is not helped by governance by slogan. Second, 10 percent of GDP to expand public construction is not enough, and it will not do much to build momentum. Third, in terms of export growth, Taiwanese industry is responding too slowly to dynamic international competition and it is unable to create results.
An increase in consumer spending, which is falling sharply, is required to promote economic growth. The ability to do so will be affected by three factors: Public confidence in government policy has hit rock bottom as the recent food safety issues are becoming a national security issue, fuel and electricity price increases brought commodity price increases, which is increasing public suffering, and real incomes have dropped to the same levels as 16 years ago, which is leading to sharp drops in consumer spending.
To build economic momentum, the government must start all over again. Doing so requires pragmatic and fundamental changes. The top financial officials place great importance on slogans, but they are incapable of focusing on pragmatic economic growth policies and are overconfident in their judgement. Their economic decisions have set some critical traps, and their explanations for their inability to meet growth expectations are deceiving themselves and the public.
The government should give serious consideration to the following pragmatic approaches to building economic growth: First, it should figure out how to build public confidence in government policy instead of treating public opinion with animosity and implementing policy that goes directly against it. Second, it should control and limit price increases, and control and manage food safety so that it does not deteriorate further. Third, it should work hard at increasing real wages and building confidence among domestic consumers.
The most urgent task is to increase private consumption to stimulate the economy and kickstart economic growth.
Kuo Chen-hero is an adjunct professor in the School of Business at Soochow University.
Translated by Perry Svensson